There are so many great things about self-employment. Being your own boss, not having to answer to anyone (except your clients) and taking charge of your financial future.
Unfortunately, a lot of freelancers take a head in the sand approach to finances, especially when times are tough and cash flow is your top priority.
While paying your bills month to month is important, you also need to be planning for the future too. So, as part of your resolutions for 2021, make getting a grip on your finances one of them.
Get a true overview of your finances
It’s easy to lose track of things. Create a spreadsheet, or use an app and list all of your essential expenditure and debts. If you’re paying a high-interest rate on loans or debit cards, look to try and pay them down first to save money over the longer term. You could look at consolidating with a loan from somewhere like Plenti, moving to a lower interest rate, or use the snowball method to pay everything off faster.
Make savings where you can
You’ve probably found a few unnecessary expenses as you’ve combed through all of your recent spendings. Cancel any unwanted subscriptions or memberships. For those things that you do need to spend on, look to ensure that you’re getting the best deal. This includes energy bills, insurance, mobile phone contracts and similar. Most providers have great incentives for switching but then, after the initial special price is over, they know you’ll be too lazy to make the switch.
Doing a price comparison could save you hundreds of dollars every year.
Learn how to create a budget
Once you have an overview of your essential expenditure, you can start building a realistic budget. Most people, if they went through all of their bank and credit card statements and wrote down all of the non-essential purchases they made, would be absolutely horrified by the amount. We don’t notice a few dollars here and there, but it can add up to hundreds of dollars per month and thousands of dollars per year. What could you do with that money?
No one is saying you can’t go to the cinema or buy a coffee, but set categories for your spending such as entertainment, personal care etc and stick to them. On the month’s you might have extra expenses due to things like birthdays or other events, you can add a bit extra to your budget for that month. This will stop you feeling that you have failed, and abandoning your budget altogether.
Think about retirement
OK, so this might be the furthest thing from your mind in your 20s and 30s, but it’s never too soon to plan for retirement. You’ll want to have the best standard of living possible, so the sooner you start investing in a pension, the longer that money has to work to bring you returns.
There are pension calculators online that will show you how much you need to save and any state benefits you might be entitled to.
Consult a financial adviser
Financial advisers aren’t just for the very wealthy. They can discuss your future plans with you, assess your current situation and advise you on how best to structure your finances and any investments to minimise your tax liability and achieve your goals.
Learn to save
Having something in the bank for a rainy day or big purchase is a great feeling, but most freelancers don’t. Now, if you’re only making enough to pay the bills then it makes sense that you don’t have a lot of spare cash to save. Even trying little things like using an app which rounds up your purchases to the nearest dollar or five dollars and puts the extra in a savings account. The amounts may be small, but they will build up over time into something more substantial.
If you do have money to spare, then putting it in a savings account every month that has a good rate of interest is a good idea. You can then look at other potential investment opportunities or higher interest schemes to get the best out of it.
Get on top of your freelance accounting
When you work for yourself, the responsibility is on you to ensure all of your accounting is done correctly and taxes paid. Depending on the kind of work you do and how many invoices and expenses you deal with, this can be straightforward with a bit of research and the right kind of accounting software.
Start off by researching the rules and regulations surrounding allowable expenses, accounting and tax liabilities. Then, get yourself an accounting package such as Rounded or Quickbooks online and use it to keep track of your income and expenses. Doing this regularly will mean that when it’s time to file your tax return, you will already have all of the information to hand.
Alternatively, you can outsource this function of your freelancing business to a professional. There are bookkeepers or specialised VA’s who can keep on top of your day to day invoicing and expense recording. When it’s time to file your returns or do your annual accounts, you can use a specialist accountant. There are many who specialise in working with freelancers and their specific requirements. Ask around the freelancer community for recommendations.
Whether you’re a freelancer or not, it’s really important to keep a strong grip on your finances. Many of the tips above are good for everyone, especially when it comes to budgeting and planning for the future.
Becoming financially savvy is a vital skill for a freelancer to have, especially when you don’t have the luxury of having everything done for you like you would when you’re on the payroll.
If you’re in the dark about your finances, face them head-on, it might seem daunting at first, but there is a lot of mental and financial benefit to doing this. Make 2021 the year you commit to getting your financial act together.